Anglo American Plc · LSE:AAL
Anglo American — FY2017 Earnings Presentation
57 slides from Anglo American's earnings presentation, Feb 22, 2018
Slide 1: 2017 Results
2017 RESULTS 22 February 2018 Kumba Iron Ore – Sishen mine
Slide 2: Cautionary Statement
CAUTIONARY STATEMENT Disclaimer: This presentation has been prepared by Anglo American plc (“Anglo American”) and comprises the written materials/slides for a presentation concerning Anglo American. By attending this presentation and/or reviewing the slides you agree to be bound by the following con
Slide 3: 2017 Results Agenda
2017 RESULTS AGENDA 1. Business performance Mark Cutifani 2. Financial results Stephen Pearce 3. Building on firm foundations Mark Cutifani 3
Slide 4: Business Performance
BUSINESS PERFORMANCE Mark Cutifani Copper – Los Bronces
Slide 5: 2017 – Delivering on our commitments
2017 – DELIVERING ON OUR COMMITMENTS Strong operating performance Earnings and cash flow Margins and returns Production volumes1 EBITDA3 EBITDA margin5 5% $8.8bn 40% Cost & volume improvements2 Free cash flow4 ROCE6 $1.1bn $4.9bn 19% 5
Slide 6: Safety, Health & Environment
SAFETY, HEALTH & ENVIRONMENT Safety Health Environment Group TRCFR7 Fatalities Occupational health – new cases Major incidents8 15 200 30 0.93 11 0.80 140 9 6 6 15 90 1.08 65 63 0.71 0.63 6 4 2 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 • ‘Elimination of Fatalities’ t
Slide 7: Productivity improvement continues
PRODUCTIVITY IMPROVEMENT CONTINUES Copper equivalent production and productivity9,10 Productivity9 200 +28% 80% 180 180 160 140 Unit costs10 120 100 80 108 26% 60 40 2012 2013 2014 2015 2016 2017 Production volumes10 Copper equivalent Production Index10 Copper equivalent Productivity Index (tonnes/f
Slide 8: Enhancing our competitive position
ENHANCING OUR COMPETITIVE POSITION EBITDA margins5 EBITDA margin5 35% 40% 40% 27% Improvement driven by 31% ✓ Productivity 26% 21% ✓ Cost efficiency ✓ Premium products 2015 2016 2017 ✓ Supportive macro environment EBITDA margin Mining EBITDA margin 8
Slide 9: Financials
FINANCIALS Stephen Pearce ore –Brazil Copper Iron – Minas-Rio plant Los Bronces
Slide 10: 2017 – Delivering on our commitments
2017 – DELIVERING ON OUR COMMITMENTS EBITDA Underlying EPS12 Free cash flow4 $8.8bn $2.57/sh $4.9bn up 45% vs 2016 Up 49% vs 2016 Up 93% vs 2016 Capital expenditure11 Net debt Total dividend $2.2bn $4.5bn 102c/sh down $0.3bn vs 2016 down $4bn vs 2016 40% of underlying earnings 10
Slide 11: Self-help underpins stronger price environment
SELF-HELP UNDERPINS STRONGER PRICE ENVIRONMENT EBITDA variance: 2017 vs. 2016 ($bn) 2.4 0.3 Met Coal (0.7) 1.1 Thermal (0.4) Copper 8.8 108 PGMs Iron Ore 7.4 Diamonds 6.1 2016 Price13 Currency Inflation14 Cost & volume2 Other15 2017 11
Slide 12: Delivering further cost and volume improvement
DELIVERING FURTHER COST AND VOLUME IMPROVEMENT EBITDA cost & volume improvement delivered ($bn) Delivered in 2017 0.9 Kumba 4.2 $1.1bn De Beers cost & volume improvement IOB 0.2 PGMs Met Coal Delivered since 2013 3.1 De Beers 108 Met Coal Other $4.2bn cost & volume improvement 2013-2016 2017 cost 20
Slide 13: Further $3-4bn cost & volume improvement target
FURTHER $3-4BN COST & VOLUME IMPROVEMENT TARGET 2018 target 2018-2022 target $0.8bn $3-4bn To deliver $5bn since 2013 Two-thirds from further operational efficiencies and project delivery One-third from technology and innovation 2018 improvement examples Cost & volume improvement – 2013-2022 $3-4bn
Slide 14: Stronger earnings, cash flow and returns
STRONGER EARNINGS, CASH FLOW AND RETURNS Underlying earnings ($bn) Free cash flow4 ($bn) Return on capital employed (%) 48% 93% 73% 3.3 4.9 19% 2.2 11% 2.6 2016 2017 2016 2017 2016 2017 14
Slide 15: Continued capex discipline
CONTINUED CAPEX DISCIPLINE 2017 capital expenditure11 2018 capex guidance16 $2.2bn $2.6-2.8bn $bn Longer term capex guidance16 4.0 $2.6-2.9bn pa 1.9 2.5 2.2 1.0 0.4 0.7 0.6 Excludes unapproved growth projects 0.6 1.4 1.3 1.0 2015 2016 2017 SIB Stripping & development Expansionary 15
Slide 16: A resilient balance sheet
A RESILIENT BALANCE SHEET Net debt17 ($bn) Net debt / EBITDA Gearing ratio18 47% 63% 48% 8.5 1.4x 26% 4.5 13% 0.5x 2016 2017 2016 2017 2016 2017 16
Slide 17: Delivering returns to shareholders
DELIVERING RETURNS TO SHAREHOLDERS Total 2017 dividend Payout ($bn) Payout (c/share) (underlying earnings) $1.3bn 1.3 102 Interim and proposed final dividend Final 0.7 Final 54 40% H2 H2 final dividend 40% Interim Interim 48 of H2 underlying earnings – in line with policy 40% H1 0.6 $bn c/share 17
Slide 18: Strong cash flow transforming balance sheet
STRONG CASH FLOW TRANSFORMING BALANCE SHEET Capital allocation framework • Free cash flow of $4.9bn 5.3 • Add back $0.3bn ‘discretionary capital’ spend Cash flow Discretionary after capital sustaining options capital19 • Reduced net debt by $4.0bn • Paid interim dividend of $0.6bn (5.0) • Other adju
Slide 19: Building on firm foundations
BUILDING ON FIRM FOUNDATIONS Mark Cutifani Met ore –Brazil Copper Iron Coal –Los – Minas-Rio Grosvenor Bronces first shear plant
Slide 20: A fundamentally different business
A FUNDAMENTALLY DIFFERENT BUSINESS MORE EFFICIENT MORE COMPETITIVE BETTER RETURNS Number of assets20 Unit costs21 Free cash flow4 ($bn) 4.9 47% 26% (1.7) 2012 2017 Production21 EBITDA margin22 ROCE6 19% 11% 9% 33% 2012 2017 20
Slide 21: Portfolio upgrading continued in 2017
PORTFOLIO UPGRADING CONTINUED IN 2017 Gahcho Kué Grosvenor Minas-Rio Stage 3 installation licence awarded Delivered on time & under budget First longwall complete on 26 Jan 2018 2017/18 disposals and closures ensure effective capital deployment • Union, Platinum, sale completed • New Largo, SA Domes
Slide 22: Portfolio uniquely differentiated
PORTFOLIO UNIQUELY DIFFERENTIATED Revenue by product23 Capital employed by geography23 Other Other 6% 10% PGMs Thermal coal 17% 14% Australia Brazil 8% 25% Diamonds Met coal (De Beers) 15% 21% Chile 13% Iron ore South Africa 14% Copper 25% Namibia & 13% Botswana 19% Asset focused strategy Quality as
Slide 23: South Africa – a high returns business
SOUTH AFRICA – A HIGH RETURNS BUSINESS EBITDA margin5 35% Free cash flow4 $2.3bn Return on capital employed6 Kumba Iron Ore - Sishen mine 23% 23
Slide 24: Disciplined capital allocation
DISCIPLINED CAPITAL ALLOCATION Copper – –Los Platinum Mogalakwena Bronces Platinum - Mogalakwena
Slide 25: Portfolio – asset quality focus
PORTFOLIO – ASSET QUALITY FOCUS Longer term positioning Quality asset focus Exceptional resource endowment High quality growth opportunities Copper Long life, low cost assets Los Bronces, Collahuasi & Quellaveco Discretionary Capital Diamonds Industry leader with diversification Capacity to respond
Slide 26: Capital allocation in diamonds to be demand led
CAPITAL ALLOCATION IN DIAMONDS TO BE DEMAND LED Millennials: the largest source of market demand Consumer demand Rest of world 45% Millennials’ market share in key markets24 USA India Gulf China Diversified customer base Areas of focus Other gifts Bridal • Marketing: Increasing spend to support dema
Slide 27: PGMs and electrification of the drivetrain
PGMS AND ELECTRIFICATION OF THE DRIVETRAIN European diesel only ~15% of platinum demand25 The ICE/hybrid market to is set to grow26 ~115m units European light duty autocats ~105m units Industrial & other 94m units 10-20% ~15% 5-10% 1% ~40% Other autocats 99% 90-95% 80-90% ~15% 2017 2025F 2030F Jewel
Slide 28: Asset focused PGM strategy
ASSET FOCUSED PGM STRATEGY The world’s leading PGM business Mogalakwena – A world class asset Mogalakwena Diverse revenue mix and high margins $2,590/oz 54% Other Copper 2017 margin27 Nickel 54% margin Amandelbult Palladium • Targeting 25% further cost reductions through modernisation, safety and pr
Slide 29: Positioned for steel industry structural changes
POSITIONED FOR STEEL INDUSTRY STRUCTURAL CHANGES 2017 average Fe content (%) – peer comparison Focus on premium products 67.0 Kumba production 64.0 60.8 60.7 64.1 64%Fe of which two thirds is lump 57.7 Peer 1 Peer 2 Peer 3 Peer 4 Kumba Minas-Rio Minas-Rio production 67%Fe Widening iron ore quality s
Slide 30: High quality brownfield growth optionality
HIGH QUALITY BROWNFIELD GROWTH OPTIONALITY Near term low cost growth potential Longer term asset optionality Moranbah Grosvenor (Met Coal) Copper Los Bronces underground >40% IRR ~25% increase in plant capacity Copper Collahuasi Capital of ~$200m De Beers Jwaneng & Orapa Marine Namibia vessel (De Be
Slide 31: Quellaveco – a world class copper resource
QUELLAVECO – A WORLD CLASS COPPER RESOURCE Ore Reserves28 Copper Eq production ~1.3bnt Reserve grade of 0.58%TCu29 ~300kt Average first 10 years Additional Mineral Resources28 Long life ~1.5bnt At a grade of 0.35%TCu29 ~30 years Significant additional endowment Low cost De-risked • Community and gov
Slide 32: Realising asset potential
REALISING ASSET POTENTIAL Iron Met ore–-–Brazil Nickel Copper Coal Barro –Los –Alto Collahuasi Grosvenor furnace Bronces Minas-Rio first shear plant Thermal Coal – Richard’s Bay Coal Terminal
Slide 33: Driving continuous improvement and innovation
DRIVING CONTINUOUS IMPROVEMENT AND INNOVATION Operating Model Roll-out ~80% Complete or in progress 2017 delivery • >35% improvement at Sishen Drill and Blast section • 13% production uplift at Mogalakwena Kumba Iron Ore - Sishen mine drill rigs Targeted innovation savings >30% reduction in costs &
Slide 34: Realising our full potential
REALISING OUR FULL POTENTIAL A unique endowment Growth optionality 2017 average life of mine Production growth potential 30 years ~3% 2018-22 CAGR Life of mine average (years) Copper Eq production growth index ~3% CAGR >125 30 30 109 100 Today 5 year target 2012 2017 2022 34
Slide 35: Our investment proposition
OUR INVESTMENT PROPOSITION Assets Capabilities Returns Focus on quality Operating Model Strong balance sheet Diversified portfolio Innovation leader Capital discipline Low cost growth Marketing quality products Dividend payout ratio “World class assets & leading capabilities to deliver a world class
Slide 36: Appendix
APPENDIX De Beers - Forevermark
Slide 37: Footnotes
FOOTNOTES 1. Copper equivalent production is normalised for the disposals of Kimberley, 11. Capex defined as cash expenditure on property, plant and equipment including Niobium & Phosphates, Foxleigh and Callide, and to reflect Snap Lake being related derivatives, net of proceeds from disposal of pr
Slide 38: Safety, Health & Environment
SAFETY, HEALTH & ENVIRONMENT Safety Health Environment Fatalities Occupational health – new cases Major incidents 15 200 30 11 140 9 15 90 6 6 65 63 6 4 2 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 • ‘Elimination of Fatalities’ taskforce • Improved working environment
Slide 39: Production outlook
PRODUCTION OUTLOOK Units 2016 2017 2018F 2019F 2020F Diamonds1 Mct 27.3 33.5 34-36 ~32 ~32 Copper2 Kt 577 579 630-6603 600-660 600-660 (Previously 630-680) (Previously 590-650) Platinum4 Moz 2.4 2.4 2.3-2.4 ~2.05 ~2.05 (Previously 2.5) (Previously 2.1) Palladium4 Moz 1.5 1.6 1.5-1.6 1.3-1.45 1.3-1.4
Slide 40: Unit cost performance by business unit
UNIT COST PERFORMANCE BY BUSINESS UNIT De Beers (US$/ct)1 Copper (C1 USc/lb) Platinum (US$/Pt oz)2 Kumba (FOB US$/t)3 BWP CLP ZAR ZAR 9.85 615 12.31 12.31 +7% -6% +8% +14% 67 63 ~70 137 147 ~150 1,330 1,443 ~1,615 31 ~35 27 2016 2017 2018F 2016 2017 2018F 2016 2017 2018F 2016 2017 2018F Minas-Rio (F
Slide 41: Earnings sensitivities – 2017
EARNINGS SENSITIVITIES – 2017 Impact of 10% change Sensitivity Analysis – 20171 in price / FX Commodity / Currency 31 December spot Average realised EBITDA ($m) Copper2(c/lb) 325 290 352 Platinum ($/oz) 925 947 157 Palladium ($/oz) 1,057 876 96 Rhodium ($/oz) 1,700 1,094 17 Iron Ore ($/t) 74 71 389
Slide 42: Portfolio overview – simplified
PORTFOLIO OVERVIEW – SIMPLIFIED De Beers Copper PGMs Botswana Debswana Mogalakwena Los Bronces South Africa DBCM Chile Collahuasi Amandelbult Namibia Namdeb South Other operations Africa Processing Canada Canada Peru Quellaveco Other operations Trading GSS Iron ore Coal Nickel & Manganese Australia
Slide 43: De Beers – strong sales and cost performance
DE BEERS – STRONG SALES AND COST PERFORMANCE Average Realised Underlying EBITDA Sales Production1 Unit cost2 Capex3 price index price EBITDA margin (Cons.) 2017 33.5Mct 122 $162/ct $63/ct $1,435m 25% $273m 32.5Mct4 vs. 2016 #22% #3% $13% $6% #2% #2pp $48% #8% Underlying EBITDA ($m) 1,406 1,435 80 (2
Slide 44: Copper – prices boost EBITDA performance
COPPER – PRICES BOOST EBITDA PERFORMANCE Underlying EBITDA Production Realised price C1 unit cost Capex Sales EBITDA margin⁽¹⁾ 2017 579kt 290c/lb 147c/lb $1,508m 41% $665m 580kt vs. 2016 0% #29% #7% #67% #10pp #18% 0% Underlying EBITDA ($m) (43) 1,545 1,508 (49) 15 17 (69) 734 903 2016 Price FX Infl
Slide 45: PGMs – self-help & PGM prices drive improvement
PGMS – SELF-HELP & PGM PRICES DRIVE IMPROVEMENT Realised Underlying EBITDA Production1 Unit cost2,3 Capex Pt sales Headcount Basket price2 EBITDA margin 2017 2,397 koz $1,966/oz $1,443/oz $866m 17% $355m 2,505 koz 28,700 vs. 2016 #1% #12% #8% #63% #5pp #13% #4% #2% Underlying EBITDA ($m) 23 (53) 866
Slide 46: Kumba Iron Ore – production increased by 8%
KUMBA IRON ORE – PRODUCTION INCREASED BY 8% Realised price Unit cost Gross cash Underlying EBITDA Production Capex (FOB)1 (FOB) margin ($/t) EBITDA margin 2017 45.0Mt $71/t $31/t $40/t $1,474m 42% $229m vs. 2016 #8% #11% #15% #8% #9% $6pp #43% Underlying EBITDA ($m) (121) 1,447 1,474 1,347 294 (73)
Slide 47: IOB (Minas-Rio) – ramp-up continues
IOB (MINAS-RIO) – RAMP-UP CONTINUES Realised price Unit cost Gross cash Underlying EBITDA Production Capex2 Sales (FOB)1 (FOB) margin ($/t) EBITDA margin 2017 16.8Mt (wet) $65/wmt $30/wmt $35/t $435m 31% $23m 16.5Mt vs. 2016 #4% #20% #7% #35% nm nm $79% #2% Product - (Mt - wet) +83% 16.8 16.1 9.2 20
Slide 48: Metallurgical coal – focused portfolio
METALLURGICAL COAL – FOCUSED PORTFOLIO Metallurgical Underlying FOB realised price2 Unit cost3 EBITDA margin Capex production1 EBITDA 2017 19.7Mt $185/t $61/t $1,977m 54% $416m vs. 2016 #1% #65% #20% #98% #15pp $20% Underlying EBITDA ($m) 1,977 (73) 1,841 108 (17) (120) 148 935 996 2016 Price FX Inf
Slide 49: Thermal coal – SA and Colombia – steady performance
THERMAL COAL – SA AND COLOMBIA – STEADY PERFORMANCE Underlying Export prod. FOB price1 Unit cost2 EBITDA margin EBITDA SA Capex SA / Col SA / Col SA / Col SA / Col SA / Col 2017 18.6Mt / 10.6Mt $76/t / $75/t $44/t / $31/t $588m / $385m 32% / 49% $152m vs. 2016 $3% / $1% #27% / #34% #29% / #11% #24%
Slide 50: Nickel – steady production performance
NICKEL – STEADY PRODUCTION PERFORMANCE Realised C1 unit Underlying EBITDA Production1 Capex Sales1 price cost2 EBITDA margin 2017 43.8kt 476c/lb 365c/lb $81m 18% $28m 43.0kt vs. 2016 $2% #10% #4% #42% #5pp $54% $4% Underlying EBITDA ($m) 81 40 (46) 26 57 (4) 28 (20) 31 2016 Price FX Inflation Cost V
Slide 51: Concentrate the mine
CONCENTRATE THE MINE™ Precisely targeting the metal and mineral with less waste, water and energy CHALLENGE Precision mining with minimal energy, water and capital intensity APPROACH Concentrate the mine™ concept: 1. Coarse particle recovery 2. Bulk Sorting COARSE PARTICLE 3. Grade Engineering ™ REC
Slide 52: The waterless mine
THE WATERLESS MINE Dry processing without the need for tailings dams CHALLENGE Around 75% of our current portfolio is located in high-water-risk regions APPROACH Coarse particle recovery • Pilot complete at Los Bronces, next unit at El Soldado • Applicability in Platinum Dry tailings disposal focus
Slide 53: The intelligent mine
THE INTELLIGENT MINE A smart, connected, learning mine CHALLENGE Predict and shape operational outcomes APPROACH • Predictive maintenance using digital twins – 5 sites • Increased use of AI in exploration and geosciences • Pervasive fibre-optic sensors – real time insights into the process and facil
Slide 54: Modern mine
MODERN MINE Continuous, hard rock mining for safer, more economic mines Underground testing is nearing completion 1 2 at our platinum mines 1. The Rapid Mine Development System (RMDS) Safely excavates low-profile tunnels with rapid access to ore 2. Continuous Haulage System (CHS) A remote controlled
Slide 55: Modern mine
MODERN MINE Continuous, hard rock mining for safer, more economic mines CHALLENGE Predict and shape operational outcomes APPROACH • Modernise – Electro-hydraulic drills, gel explosives, no scraper-winches • Mechanise – Remote operated ultra-low- profile equipment • Continuous cutting – Hard rock cut
Slide 56: Marketing – maximising value of our endowment
MARKETING – MAXIMISING VALUE OF OUR ENDOWMENT EBITDA Value chain optimisation $0.3bn $0.1bn • An integrated marketing function • Shipping optimisation • Leveraging our products, our people and our infrastrucrture • Product blending Marketing excellence Third party marketing and trading $0.1bn $0.1bn
Slide 57: Debt maturity profile at 31 December 2017
DEBT MATURITY PROFILE AT 31 DECEMBER 2017 Debt repayments ($bn) at 31 December 2017 1.9 1.8 1.4 1.3 1.3 1.4 1.4 1.0 0.7 2018 20191 2020 2021 2022 2023 2024 2025 2026 2027 Euro bonds US$ bonds Other bonds Subsidiary financing % of portfolio 53% 38% 6% 3% Capital markets 97% Bank 3% US bonds Euro bond